Pakistan to challenge bail for Mumbai attack 'mastermind'

(Reuters) - Pakistani prosecutors are to appeal against a court decision to grant bail to a man accused of plotting a 2008 militant assault in India's financial capital that killed 166 people and seriously strained ties between the nuclear-armed neighbors.

The decision on Thursday to grant bail to Zaki-ur-Rehman Lakhvi came two days after Pakistan's worst ever militant attack, the killing by Pakistani Taliban gunmen of 132 children and nine members of staff at a school in the city of Peshawar.

Indian Prime Minister Narendra Modi condemned the prospect of bail for the man India accused of masterminding the attack on Mumbai in which 166 people were killed.

The Pakistani government appeared to have been taken by surprise by the court decision and state prosecutor Chaudhry Azhar said it would be challenged.

"We will go to Islamabad High Court on Monday to file the application," Azhar told Reuters on Friday.

Lakhvi would not be able to leave the prison until then, he said.

The decision to grant bail to Lakhvi comes two months after India and Pakistan were engaged in their worst cross-border violence in more than a decade, in the disputed Kashmir region.

"This type of attitude is a setback for all those who believe in humanitarianism," Modi told lawmakers in parliament in New Delhi, referring to the Pakistani court's ruling.

"We have conveyed the message in appropriate words to Pakistan."

India blamed the Pakistan-based militant group Lashkar-e-Taiba for the Mumbai attack, in which 10 gunmen spent three days spraying bullets and throwing grenades around city landmarks.

Indian investigators said Lakhvi was the group's military chief and the sole surviving gunman had identified him as the mastermind of the assault.

Pakistani Prime Minister Nawaz Sharif has been trying to repair relations with India, which he sees as vital to kickstarting Pakistan's sluggish economy.

Modi, a hawkish nationalist whose party has struggled to shake off accusations it favors majority Hindus at the expense of religious minorities, had earlier condemned the Peshawar school attack saying India was as pained as Pakistan over the massacre of the children.

Relations between the neighbors have been rocky ever since independence from Britain in 1947. They have fought three wars, two over the largely Muslim region of Kashmir. (Additional reportig by Aditya Kalra, Andrew MacAskill in Delhi; Writing by Katharine Houreld; Editing by Robert Birsel)